Getting the most out of the stock market and investing confidently are common goals for investors new and old, and Zacks Premium offers many different ways to do both.
The research service offers daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks # 1 Rank List, equity research reports, and premium stock screens to help you become a smarter, more confident investor.
Zacks Premium also includes access to the Zacks Style Scores.
What are the Zacks Style Scores?
Developed in conjunction with the Zacks Rank, the Zacks Style Scores are a group of complementary indicators to help investors choose stocks with the best chance of beating the market over the next 30 days.
Each stock is rated A, B, C, D, or F based on its value, growth, and momentum characteristics. Just like in school, an A is better than a B, a B is better than a C, etc. That is, the better the score, the greater the chance the stock will outperform.
The style scores are divided into four categories:
For value investors, the point is to find good stocks at good prices and find out which companies are trading below their true value before the broader market takes hold. The Value Style Score uses metrics such as P / E, PEG, price / sales, price / cash flow and a variety of other multipliers to select the most attractive and discounted stocks.
Growth investors are more concerned about a stock’s future prospects and a company’s overall financial health and strength. Therefore, the Growth Style Score analyzes traits such as forecast and historical earnings, sales, and cash flow to find stocks that will experience sustainable growth over time.
Momentum traders and investors live by the saying “the trend is your friend”. This style of investing is about capitalizing on an upward or downward trend in a stock’s price or earnings outlook. Using factors such as a week-long price change and the monthly percentage change in earnings estimates, the Momentum Style Score can indicate a good time to take a position in stocks with high momentum.
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If you want a combination of all three style scores, the VGM score is your friend. It rates each stock based on their combined weighted styles and helps you find the companies with the most attractive value, the best growth forecast, and the most promising momentum. It’s also one of the best indicators of Zacks rank.
How Style Scores Work with Zacks Rank
The Zacks Rank, a proprietary stock valuation model, uses revisions to earnings estimates or changes to a company’s earnings expectations to help build a successful portfolio.
It is very successful as the # 1 stock (Strong Buy) has achieved an unmatched average annual return of + 25.41% since 1988. That’s more than double the S&P 500. But because of the large number of stocks we rate, there are over 200 companies that ranked Strong, plus another 600 that ranked # 2 (Buy) on any given day.
This includes more than 800 top-rated stocks, and picking the best stocks for you and your portfolio can be overwhelming.
This is where the style scores come into play.
You want to make sure that you are buying stocks with the highest probability of success, and to do this you need to select stocks with a Zacks rank of # 1 or # 2 that also have style ratings A or B like a stock that is only rated # 3 (Hold) it should also have scores of A or B to guarantee as much upside potential as possible.
As mentioned above, the scores are designed to work with Zacks rank, so any change in a company’s earnings outlook should be a determining factor in choosing which stocks to buy.
A stock rated # 4 (Sell) or # 5 (Strong Sell), even one rated A and B, still has a declining profit forecast and a greater chance the stock price will fall too.
The more stocks you own with rank 1 or 2 and a rating of A or B, the better.
Watchable Stock: Caterpillar (CAT)
Known for its iconic yellow machines, Caterpillar is the world’s largest manufacturer of construction and mining equipment. Serving a wide variety of sectors – infrastructure, construction, mining, oil & gas, and transportation – the company is considered a pioneer in the global economy.
CAT is # 2 (Buy) on the Zacks rank with a VGM score of A.
Additionally, the company could be a top choice for growth investors. CAT has a growth style score of A and forecasts earnings growth of 47.1% year over year for the current fiscal year.
Four analysts revised their earnings estimates upward over the past 60 days for fiscal 2021, while the Zacks Consensus Estimate rose $ 0.11 to $ 9.65 per share. CAT also has an average earnings surprise of 41.6%.
With a solid Zacks rank and top notch growth and VGM style scores, CAT should be on the shortlist of investors.
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Caterpillar Inc. (CAT): Free Stock Research Report
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